Tuesday, May 10, 2011

Insurance Carriers Can Disclaim Coverage Where Notice of Claim Isn't Timely and Resulting Prejudice Can Be Shown

Sherwood Brands, Inc. et al. v. Great American Ins. Co.
Court of Appeals of Maryland
September Term, 2010
Filed February 24, 2011

           Recently, the Maryland Court of Appeals issued an opinion in the case of Sherwood Brands, Inc. et al. v. Great American Ins. Co., holding that Md. Ins. Code Ann. § 19-110 applies to “claims-made-and-reported” policies, where the claim giving rise to the insurance coverage occurs during the insurance policy period, but the insured fails to give timely notice of the claim pursuant to the notice provision of the policy.  Under such conditions, pursuant to § 19-110, the insurance policy notice provision is treated as a covenant, where the failure to abide by that covenant constitutes a breach, and the disclaiming insurer must then prove prejudice. 

           In Sherwood, Great American Insurance Company (“Great American”) denied two claims against Sherwood Brands, Inc. (“Sherwood”), which occurred during the insurance coverage period but were not reported to Great American until more than 90 days after the termination of the policy.  Sherwood’s insurance policy with Great American required it to inform Great American of any claims against it within 90 days of the termination of the policy. 

           The Court of Appeals found that the Great American policy at issue here was a “claims-made-and-reported” policy rather than a pure “claims-made” policy.  The Court explained the difference between the two, stating that under a claims-made policy, a claim must be made against the insured during the policy period, but need only be reported to the insurer “promptly,” or “as soon as practicable,” and not necessarily during the policy period.  By contrast, a claims-made-and-reported policy requires that the claim must not only be made against the insured during the policy period, but reported to the insurer during the policy period.  If the claim is not made and reported accordingly, the insurer may deny coverage if it can show it suffered prejudice from the late notice.

           In Sherwood’s case, the insurance policy was a claims-made-and-reported policy, and the Court found that the record on appeal was devoid of the required showing that Great American suffered any prejudice from the late notice.  The trial court’s judgment was vacated and the case was remanded for further proceedings.

Article Contributed by James Buck

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